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Six Essential Ratios to Monitor for Business Enhancement

In the business arena, much like medical professionals in the developing world use the infant mortality rate to track progress, or baseball players rely on their "on-base percentage," acquirers lean heavily on ratios to assess a business's health. Ratios, more informative than mere aggregate numbers, offer insights into the relationships between different business aspects.

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If your goal is to sell your business in the future, these six ratios are vital to start monitoring immediately to enhance its value:

Business Value Building Strategies

  1. Employee-to-Space Ratio: Determine how efficiently you're utilizing your office space by dividing the total square footage by the number of employees. The standard in commercial real estate suggests about 175–250 square feet per employee.
  2. Net Promoter Score (NPS): Created by Fred Reichheld and his team, this ratio measures customer loyalty based on their likelihood to recommend your business. Calculate the percentage of customers who would highly recommend you (scores of 9 or 10) and those less likely (scores of 0 to 6). Subtract the detractors from the promoters to get your NPS. An above-average NPS often correlates with faster business growth.
  3. Sales Efficiency Ratio (Sales per Square Foot): This ratio quantifies how well you're converting your real estate investment into sales. Specific benchmarks vary across industries, but for retailers, for example, $300 per square foot is a reasonable standard.
  4. Revenue per Employee: This ratio is crucial as it relates to your most significant expense—payroll. It compares your total revenue to your employee count. High revenue per employee, like Google's, signifies efficient use of human resources.
  5. Client-to-Account Manager Ratio: This measures how many customers each account manager is responsible for. The ideal number varies across industries and should be adjusted carefully to avoid diminishing sales or customer satisfaction.
  6. Visitor-to-Prospect Conversion Ratio: Assess the effectiveness of your website in converting visitors to potential leads. Experts like Dr. Karl Blanks and Ben Jesson suggest focusing on beating your own opt-in rates rather than comparing them to others.

By providing acquirers with these detailed ratios, you make your business more attractive for acquisition. These ratios offer a comprehensive, data-driven view of your company's operational efficiency and potential for growth.

Olemera Financial Services – Business Value Planning

In conclusion, tracking these six key ratios offers invaluable insights into your business’s operational efficiency and potential. By meticulously monitoring and optimizing these metrics, you not only gain a clearer understanding of your company's performance but also significantly enhance its attractiveness to potential acquirers.

These ratios, reflecting various aspects of your business health, are crucial tools in your strategic toolkit, paving the way for informed decision-making and maximizing the value of your business in the competitive market landscape.

To find out more about Olemera’s business value builder, contact us.

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